There has been a lot of buzz recently in the Real Estate world regarding the economy and its impact on current mortgage interest rates. If you’ve been a part of the conversation or seen the headlines and are curious as to what exactly it means for you as a buyer or seller, we are breaking it down in three easy-to-understand sections: Where we are, where we’ve been, and where we’re headed…
Where We Are
As a nation, we are experiencing historically low interest rates. But even though the stock market is up and the economy overall is doing well (low inflation, low unemployment), you never know what might happen moving forward. For now, buying power is very high, but what does that mean, exactly? Let me break it down for you…
If interest rates are low, that means it costs less to borrow money. If it costs less to borrow money, then more of your monthly payment is going toward paying off the home itself. This means that, for the same monthly payment, you can afford a bigger, nicer, or more fitting home than you could if a larger chunk of your monthly payment was going towards the cost of the loan. That is what it means to have higher buying power.
Where We’ve Been
This graph shows the peaks and valleys associated with interest rates over the last 10 years. As we mentioned, we are definitely in a valley, but, eventually, we will work our way back up, history has shown us that again and again. It’s important to keep in mind that an interest rate of 4 or even 5 is not crazy – it is, in fact, quite normal. We are just so low now that a jump out of the 3’s seems huge when, in reality, the current rates are what is abnormal, not rates a few points higher.
Just for comparison’s sake, take a look at this 50 year average interest rate graph. The shaded areas are recessions and that very high peak… that’s a rate over 18%. 5 or 6 times higher than what we are seeing now. No one sees that happening again, but it’s interesting to see how things change over the years.
Where We’re Headed….
As for the future of rates – the general consensus is that we will remain low for quite some time. We see no signs of an impending jump either way. Most experts predict continued real estate appreciation, although it has begun (and will most likely continue) to slow a little, and for interest rates to remain low for the foreseeable future.
Now is a great time to look into your value if you are a homeowner, and still a safe time if you are thinking about buying.
